Transcript of a Press Briefing by Masood Ahmed, Director of External Relations Department

MR. AHMED: Good morning. I am Masood Ahmed and this is our regular press briefing. Let me welcome journalists participating through the Online Media Briefing Center and encourage them to send in their questions early.

Let me also just mention a point of housekeeping at the beginning which is that this will be our last briefing before the Executive Board recess in August, and the next briefing that we will have will be on August 23. So there is a longer gap between these briefings in August than regularly. Of course, if people have questions during this period, we will be there all the time to answer those, so please send them in to us and we will respond accordingly.

Let me also, before taking your questions, just mention a couple of items of management travel. First, to let you know that the Managing Director will be traveling to Thailand, the Philippines, and Cambodia between July 28 and August 2. During his trip he will be meeting with the authorities, with members of civil society, the private sector, and academics in all countries. As part of his visit to Thailand, he will give a keynote speech at the Southeast Asian Central Bank Governor's Conference in Bangkok. A press release announcing this visit has been issued and has more details for those who want to follow-up on it.

Also next week, the First Deputy Managing Director John Lipsky will be visiting Australia where he will meet with the authorities and attend the Asia Pacific Economic Cooperation Finance Ministers' meeting. While in Australia, Mr. Lipsky is going to deliver two speeches, one on financial market globalization at the Lowry Institute in Sydney, and the other in Canberra, at a seminar organized by the Australian Treasury on global imbalances and the first multilateral consultation. For details on press attendance at these events, I would suggest you contact the organizers in Australia and if you have any questions, we would be happy to help out. So please contact my colleagues on the media relations team.

Let me now turn to questions, and as I say, I encourage again those of you who are participating through the Media Briefing Center to send in your questions. Please identify yourself and your affiliation.

QUESTIONER: Yesterday we were given this updated WEO. It was very interesting especially of course for me representing an Italian media outlet to see the revised estimate for Europe. However, Italy has remained still on its position.

So I was wondering if you could elaborate what do you think is not driving up your projection for Italian growth compared with other countries like Germany, et cetera. And also a question about the recently approved pension reform in Italy that was after an agonizing process finally passed by the Italian government, and there have been different comments about it, and I would like to know if the IMF has any at this point. Thanks.

MR. AHMED: I can certainly give you an answer on the second, and for maybe part of your question I will start with that and then come to the first. On the second part, the issue of pension reform, I should say that our reaction to this agreement obviously at this stage is preliminary because several important aspects of the recent agreement remain to be finalized and we still need some information and analysis including those relating to labor market aspects before you can have a definitive assessment. That said, we share the European Commission's assessment on this and welcome the agreement's aim to protect the financial impact of already legislated reforms which has been a key consideration for us.

But it is also key to strengthen incentives to work with the view to encouraging participation in the labor force and to lengthen working life. In that way, we believe that it will be important to bear these aspects in mind in resolving positively and quickly the outstanding aspects of the agreement.

Coming back to the first part of your question which was why we did not do a mid-term correction or change, if you like, or update in our prospects for Italy as part of the WEO update that was announced yesterday by my colleagues in the Research Department. I think in a way, this is an interim process during which we look at the major economies and the world economy as a whole and see where there have been significant changes from the situation as it was when we did the last WEO analysis in the spring. In some cases there have been significant changes for one reason or another, either the events have turned out to be more positive as has been the case in a number of emerging markets, in Europe in some countries as well, and in Japan. In some cases, in fact, the events have turned out to be such that the projections now for the remainder of the year have brought down particularly in this case in the U.S. So my colleagues yesterday went over some of those and Italy just happened to be one of the countries where there has not been that much of a change from the time that we looked at it a few weeks ago.

QUESTIONER: I think I missed only one passage about the pension reform. You said you share the European Commission's opinion, and the second piece, it is key to strengthen the what?

MR. AHMED: The incentives to work and to encourage participation in the labor force, and also to lengthen working life.

I see I have the first question coming in on the Online Briefing Center from Turkey. The question is: After the reelection of the ruling AKP Party in Turkey, many authorities from the government and business world have argued that Turkey can and should end its relationship with the IMF. Do you think that is the right decision for the Turkish economy?

I would like to make three points in response to that. The first of course is that this is a decision for the Turkish authorities, and as far as the IMF is concerned, we are cooperative. We work with our members in many ways and the range of ways in which we work spans having a relationship through a program, having a relationship through the surveillance function that we have, as well as providing capacity building and other support as needed in our core areas and as our members want it.

The second point I would make is that in the context of Turkey, we have had a very fruitful and close relationship and we continue to hope and expect that that relationship will go forward. And finally, as to the precise form of that relationship, which, currently as you know, we have a program with Turkey, what follows from that when that current program expires is again very much a decision that the Turkish authorities will take and which the Fund will be guided by. But whatever the form of the relationship, we will be ready to work with and support the Turkish authorities in their endeavor for macroeconomic stability and financial stability.

QUESTIONER: I wonder if you could just bring us up to date on the status of the discussions about the financing of the IMF and whether or not there is any sort of future board meetings due on that ahead of the summer break?

MR. AHMED: As you know, one of the planks of the Medium-Term Strategy has in fact been to take forward the work on a new income model for the IMF. In the past few days, in fact on July 23, the Board discussed a staff paper that builds on the report that was done by the Committee of Eminent Persons on the financing of the IMF. You will recall this was the so-called Crockett Committee that reported earlier in the year. That discussion showed that there was a broad consensus among the members that the Fund should no longer rely on income from lending alone to cover its expenses because in a way it validated the broad premises and the conclusions of the Crockett Report, that we need to move toward a new income model, and that the recommendations from the Crockett Report provide a sound basis for taking this agenda and issue forward.

We received guidance from directors on different elements of this and it was clear that there were some areas where there is going to be a need for additional discussion, and the next step will be for staff to prepare a follow-up paper for discussion before the Annual Meetings in October.

I should also say that in parallel with the work on income, we continue to work on the issue of risk training and managing the expenditure side of the Fund. We very much see that it is important for the Fund regardless of the issue of income as a public institution to deliver value for money for expenditure, and as you know, the Executive Board and management have agreed on a medium-term budget framework which looks at a 6 percent real reduction over 3 years, 2 percent a year real reduction, in the expenditures, and we see that as being an important plank which runs alongside the work that is being done to develop a new income model.

QUESTIONER: I just wondered, you said there are some areas where further work needed to be done? I am sorry, I did not catch that.

MR. AHMED: I think there is going to be more additional technical work that needs to be done on some of these, and obviously there is also a need for further discussion. This is going to be a series of discussions, so the next step as I said will be to come back with a paper which will be the basis for discussion before the Annual Meetings.

QUESTIONER: Was there discussion of the gold sales option?

MR. AHMED: The Crockett Report as you know had a number of options, including gold sales, and the discussions that took place covered the whole range of options that had been laid out.

QUESTIONER: But there was no preliminary judgment?

MR. AHMED: At this stage we are not at the point where people are making judgments on it. This is basically the preparatory phase to it.

I have another question from the Online Briefing Center, and the question is: Could you tell us how many candidacies the board has received for the position of Managing Director and who they are?

The response to that question is that, as you know, the Executive Board set out both a process and a timetable for this. The timetable is that until the end of August the process for nominations for the Managing Director position is open. As of now, as you know, there is one candidate that has been nominated and that is Mr. Dominique Strauss-Kahn, and as of now that is the only formal nomination that we have in place.

QUESTIONER: Changing subjects, if I did not mistake, the Board was examining also the quota and voice reform. Have they taken any step forward? I had read somewhere about a proposal from Canada I think, the so-called filter approach, so if you can tell me something. Thanks.

MR. AHMED: Quota and voice reform is the other area of the Medium-Term Strategy on which we are now working, and indeed, as the Managing Director has been stressing on a number of occasions, this is an area where he is personally committed to advancing the discussions as much as possible in the coming weeks.

Indeed, there was a discussion in the board on quota and voice reform yesterday and what is clear from that discussion is that there have been a number of ideas that have been put on the table, a number of proposals and suggestions on how to move forward on the question of defining both a formula for guiding the next round of increases as well as the way in which those increases themselves should take place. Certainly one of the proposals that has been out there has been the one that is being discussed in the context of the G-20 that you referred to, and there are other ideas as well on the table.

What is clear from the discussion that took place yesterday, the outcome of that is that the Board has asked the Managing Director to now come forward with a proposal which could then be the basis of moving from what has been a discussion of many options to a proposal around which we can get a broad consensus and support from the membership. The Managing Director is now very much committed to taking that forward in terms of coming forward with a proposal. He will be working on this both here but also extensively in terms of the traveling that he is going to be doing between now and September. In addition to the trip that I just mentioned, he is also planning to travel to Africa, he is planning to travel to Latin America, and he is planning to travel to Europe during the coming weeks precisely with trying to build consensus and support for the quota and voice reform package being very much on his priority list.

QUESTIONER: Just a follow-up. So now the next step is in the hands of the Managing Director who has to advance a proposal among all these ideas that have been tossed around and then gather support from the members? Is that correct?

MR. AHMED: Yes. The next step is to come forward now. What the Board has asked for and what the Managing Director is now committed to do is to come forward with a proposal which would then be the basis. Obviously, in crafting that proposal, it is very important to consult as he is doing with the membership because the proposal needs to be one that commands the broad support of the membership and we are committed to advancing that agenda very much during the coming weeks and in the run-up to the Annual Meetings in October.

I have one more question now from the Online Media Briefing Center: When do you expect to release the PINs, that is the Public Information Notices, on the U.S., E.U., and Japan Article IV Consultation?

The response to that is that I believe for the Euro area we are planning to release the Public Information Notice early next week, and for Japan and the U.S. shortly after the Board meetings on these countries this coming Friday, which is to say tomorrow, again, early next week. So it is all in the coming days.

QUESTIONER: Could I just follow-up on the proposal on quota and voice reform? So in other words, the Managing Director is committed before he leaves to coming up with this proposal? Is that right? I just want to make sure of that.

MR. AHMED: The Managing Director has indicated that during the period between now and the Annual Meetings and, therefore, during the period before he leaves, he is committed to advancing the agenda on quota and voice reform as a high priority and, therefore, the next step in that, which is what the Board has asked to do and what he has committed to do, is to come forward with a proposal, and that is our objective. As I said, it is not simply a question of coming forward with the proposal, the importance is to come forward with a proposal that has been crafted with the consultation input so that it will indeed command broad support, and that is why he is very intensively traveling and working on this as a high priority deliverable during the coming weeks.